The merger talks between MTN and Reliance Communications (RCOM) have come to naught. In mid-July, MTN pulled out of the negotiations over legal and regulatory issues.
What threw a spanner in the works was Mukesh Ambani’s claim that his company, Reliance Industries Limited (RIL), had the right of first refusal in the event of a change in management or in ownership of the Anil Ambani-led RCOM. Unwilling to be dragged into controversy, MTN decided to opt out at the end of the exclusivity period.
For the South African operator, this was the second time this year that talks were breaking down with an Indian operator. In May, negotiations with Bharti Airtel had collapsed over the holding structure of the new entity. MTN had proposed that Bharti should become a unit of the MTN Group. This was not acceptable to Bharti.
Now, with the MTN-RCOM talks failing, speculation is rife that Bharti could be back in the reckoning. In fact, it was rumoured that MTN had begun sending feelers to Bharti even before the negotiations with RCOM had ended. However, Akhil Gupta, joint managing director, Bharti Airtel, says this is all very speculative and nothing has actually transpired yet. According to industry experts, if negotiations with Bharti are to resume, MTN will have to work out a new holding structure.
For the moment though, it seems as though both Bharti and RCOM are out of the race. While MTN will continue its efforts to find a suitable partner, its goal of creating a top 10 global telecom group will be far tougher. MTN has reportedly now set its sights on Mexico’s America Movil as well as on other operators in India, Bangladesh and Pakistan.
For RCOM, meanwhile, the breakdown in talks comes as a major setback to its global aspirations. It had pinned a lot of hope on a deal with MTN. Early June, when the MTN-Bharti deal failed to materialise, RCOM swiftly stepped in with an over $60 billion offer for MTN. Among the many shareholding patterns discussed, the one favoured by RCOM was a reverse merger, under which MTN would buy RCOM in a specific ratio. Anil Ambani proposed to trade most of his 66 per cent stake in RCOM to become the largest shareholder in MTN. While technically this would have implied a sale of RCOM to MTN, Anil Ambani would have become the largest shareholder in the new entity.
But then Mukesh Ambani upset the applecart. Citing a 2005 family settlement, RIL wrote to MTN on June 12, stating that it had the right of first refusal in case a majority stake was sold in RCOM, as the telecom company had been formed through a demerger with RIL. Anil Ambani strongly refuted the claim, stating that it was “untenable, baseless and misconceived” and that there was no such clause in the family settlement. But the damage had been done, and MTN soon pulled out.
According to industry analysts, Mukesh Ambani’s attempt to block the MTNRCOM deal stems from the feud that has been simmering since 2005 when the $22.5 billion Reliance Group was divided between the brothers. Although both sides had agreed to not compete with each other, they have since never lost an opportunity to bring the other down. Earlier, for instance, RIL and the Anil Dhirubhai Ambani Group (ADAG) were engaged in a dispute over the price of gas from RIL’s KrishnaGodavari basin which ADAG required for its upcoming Dadri power project.
From a telecom perspective, the dispute between two of the country’s leading business groups has cost the sector an opportunity to create a mobile giant, with 115 million customers in 23 countries and estimated annual revenues of $14.4 billion.
